Pandemic-induced cash flow pressure on US businesses is reflected by widespread deterioration of B2B customer credit risk
The US economy is facing a grim outlook. The COVID-19 containment measures have had a significant negative impact on consumer spending and have further disrupted supply
chains that were already under pressure due to the Sino-US trade wars.
Industrial production has slowed, affecting investment growth. The country is facing widespread job losses, with estimates from the Bureau of Labor Statistics showing more than 20 million jobs lost in March and April, although some improvements were seen in May. Corporate debt has increased in recent years and now poses a downside risk with the deteriorating creditworthiness of businesses likely to lead to an increase in insolvencies during 2020. The economy is expected to contract by up to 7% in 2020.
Key takeaways from the report
- US businesses remain optimistic despite challenging economic environment
- A sharp increase in unpaid invoices leads to some liquidity issues
- U.S. businesses employ a wide range of credit management techniques
- U.S. businesses increase B2B payment terms, although DSO also up
Key survey findings for the US
The full impact of the trade war uncertainties and the economic downturn caused by the COVID-19 pandemic remains uncertain. However, as the responses to the Atradius Payment Practices Barometer survey show, there has been a significant deterioration of B2B customer credit risk in the US, with a staggering 72% year-over-year increase in invoice payment defaults. The suppliers we polled in the US reported 43% of the total value of B2B credit sales is overdue.
This rise is in large part attributable to an increase in the amount of long overdue invoices (still unpaid after than 90 days past their due date), the total value of which rose to 16%, up from 10% one year ago. What’s more, the businesses we surveyed recorded a fourfold increase in the total value of write-offs of uncollectable receivables, rising to 4% from 1% last year.
The survey responses showed a business environment experiencing strained cash flow and liquidity issues. In particular, this was evidenced by the year-over-year 32% increase in businesses stating they needed to delay payment to their suppliers due to late payments from their customers and by the 41% increase in respondents who said their B2B customers use outstanding invoices as a form of short-term finance.
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